With members of Generation Z using TikTok as a search engine, gig workers in that cohort may turn to that platform for tax advice—and they may be more susceptible to tax myths, an investigation by tax software developer Keeper found.
Keeper staff writer Chloe Bryan said that staff members watched hundreds of TikTok videos on taxes (called “TaxToks”), then spoke to tax experts about them before identifying the “five most troubling TaxTok myths affecting self-employed workers.” She and her team then compared these myths, where possible, to anonymized 2022 transactions from 28,449 self-identified freelancers who used the Keeper app, in order to see how viral tax hacks map on to actual freelancer behavior.
The five myths are the following:
● If you write off $500 in business expenses, you’ll save $500 on your taxes.
Deductions don’t lessen one’s tax liability dollar-for-dollar; rather, they lower the amount of money on which one is taxed. TikTok’s short format, however, may fail to clarify the distinction between lowering one’s tax bill and lowering one’s taxable income when considering specific expenses.
That may cause a filer to believe that write-offs get him or her a dollar-for-dollar “refund” on a purchase, and he or she may take write-offs that really should not be taken.
● People who rely on their appearance for work can write off appearance-related expenses.
Taxpayers have to prove that their appearance-related expenses are used only for their business, not for their personal life. For example, one freelancer said that he embroidered his name onto the inside of the suit he uses for work so he could try to write it off as a uniform. He could not.
● Lifestyle influencers can write off “lifestyle expenses,” such as clothing hauls or home decor.
As personal and business expenses must be separated out, the IRS requires that write-offs be “ordinary and necessary” for one's business. Some people allege that they need to purchase certain items in order to lead an aspirational lifestyle, Robert Persichitte, a CPA who worked as an IRS auditor for 10 years, told Keeper.
“Entertainers have been known to make a convincing argument about how much they have to spend to ‘stay on top’ or keep current,” the IRS’s Entertainment Audit Technique Guide states. “Nevertheless, most of these items typically overlap too much with personal expenses to constitute business deductions."
Keeper found that 68 percent of those from its dataset wrote off some portion of their rent-related transactions, presumably because they work from home. That is a deduction that can apply to many industries. But sites such as TikTok spread misleading content about what can and cannot qualify as a legitimate deduction.
“People want to get rich quick and want there to be some secret formula that only rich people know about, when the truth is it’s a secret formula designed for rich people, so you’re already excluded,” CPA Tim Owens told Keeper. “So the personal expense stuff takes off because it’s basically saying, ‘Your home is full of tax write-offs and you just didn’t know it.’”
Owens noted that that social media influencers are particularly incentivized to post misleading content that gets a lot of engagement.
● You need an LLC to claim write-offs.
“To write something off as a business, all you need is a clear business enterprise,” said Persichitte. “The IRS doesn’t care about the legal structure.”
To determine whether a business is an actual business and not just a hobby, the IRS lists many factors, such as whether one keeps records, depends on the income from the business, and has non-monetary motives for the work, such as “general enjoyment or relaxation.”
Companies such as LegalZoom, which help self-employed people with LLC formation, market aggressively on social media, and some TikTok videos misleadingly imply that an LLC is the only way to “legitimize” a business. That leads many 1099 workers to believe they need an LLC to claim write-offs. In many cases, setting up an LLC may not be advantageous to a sole proprietor, who would be taxed the same as a single-member LLC.
● You can deduct the full cost of a business vehicle the first year it’s in use.
Section 179 of the Internal Revenue Code allows for the deduction of the purchase price of a business vehicle if it weighs between 6,000 and 14,000 pounds, and is used more than half the time for work. But several freelancers failed to mention that only the business-use percentage of any purchase is deductible.
In addition, a taxpayer who takes a Section 179 deduction on a vehicle cannot use the standard mileage rate to deduct expenses related to that vehicle and cannot write off depreciation on the car in future years.
Owens blames this myth on its ability to get plenty of engagement. “The reason [freelancers] always focus in on cars is simple: Regular deductions [are] maybe a few hundred [dollars] at a time, and that's boring,” he said. “Cars [mean] tens of thousands at a time, and that's exciting.”
“It’s important to make investments to get your business up and running, even if that means taking a loss the first few years,” Bryan concluded. “But just because something is a tax break doesn’t mean it’s a good tax break for your individual situation.”